Suit Says Castle Garden Not Insured Dorney Goes To Court Against R.i. Company

February 05, 1986|by DICK COWEN, The Morning Call

Dorney Park has gone to federal court against a Rhode Island insurance agency for the agency's alleged failure to have coverage for Castle Garden when it burned to the ground on Nov. 27.

The park estimates the losses for the dance pavilion at $2.5 million for the building and its contents and $400,000 for the business interruption.

Further, the park says it learned that all of its facilities - except the rides - were without insurance coverage between Oct. 21 and Jan. 10.

Allentown attorney Richard F. Stevens, one of the attorneys representing the park, says that when the park put in its claims after the Castle Garden fire, it was told there was no coverage.

According to the insurance carriers, the Rhode Island agency had never gotten the coverage under policies that were supposed to begin Oct. 21, Stevens said.

The suit has been filed in federal court in Philadelphia by Dorney Park Coaster Co. of 3820 Dorney Park Road, South Whitehall Township, and David Victor Corp. (DVC) of 2nd and Chestnut streets, Coplay.

Dorney Park owns the land and buildings, including Castle Garden. DVC was the operator of the dance hall under a lease it had with Dorney Park.

The park and DVC ask in excess of $3 million.

The suit says that as far as insurance coverage is concerned, Dorney Park has always acted for itself and DVC.

The defendant is Naughton Insurance of East Providence, R.I., headed by John Naughton Sr. Contacted last night, Naughton would not comment on the suit.

The complaint says that since 1980 Dorney Park has relied upon the expertise and assistance of the Naughton agency and its president "to acquire appropriate fire and casualty insurance for the protection of operations of Dorney Park's business."

In turn, the park has acted for concessionaires and tenants, including DVC, in relying upon Naughton.

The complaint says the Naughton firm has held itself out as experts in the specialized field of amusement business insurance. It cites a Nov. 9 agency ad that carries the headline: "If your business is all fun and games, let Naughton handle the insurance."

In the last five years, Naughton has acted as Dorney Park's insurance advisor and broker, and the park has relied on Naughton to properly keep all of its properties adequately insured, the suit says.

"Thus, since Oct. 21, 1980, Naughton has obtained fire and casualty insurance coverage on all the real and personal property at Dorney Park. Always included in such insurance was the structure known as Castle Garden," the suit says.

The fire and casualty policies for Oct. 21, 1984, to Oct. 21, 1985, insured the park as follows:

- The first $8 million of loss to any real or personal property was paid by the insurers selected by Naughton.

- Any loss in excess of $8 million was self-insured by the park.

The coverage also provided business interruption insurance up to $1.3 million and full replacement value on all buildings and equipment.

A chart accompanying the filing shows the premium at $120,000.

The suit says 10 days before that coverage expired, John Naughton Sr. wrote a letter outlining "the most favorable terms available" for a year's coverage beginning Oct. 21, 1985.

The suit says the proposal increased the premium by two-thirds - to $200,000. The blanket coverage remained at $8 million for all buildings and equipment of the park, similar to what was insured under prior policies.

"Despite the higher cost, Dorney Park accepted the proposed insurance coverage - in part because of the short time remaining and in partbased on confidence in Naughton's expertise."

But Dorney Park also asked Naughton to see if any other programs of insurance would be suitable for the park's needs.

Merchants Bank held a mortgage of about $8 million on the property, and the Naughton agency knew the blanket $8-million insurance was required under the bank's mortgage, the complaint says.

Then came the fire of Nov. 27 that leveled Castle Garden.

And Dorney immediately provided notice to Naughton of the catastrophe.

"Thereafter, Naughton did advise Dorney Park for the first time that Castle Garden was not insured as per the agreement between the parties and the representations of Naughton."

The words "for the first time" were underlined in the suit.

"In fact, it now appears that there is no blanket $8-million policy and that all of Dorney Park's buildings were uninsured since the expiration date of Oct. 21 until the park secured some insurance for its buildings through another insurance agent on Jan. 10."

Further, although Naughton's 1985-86 proposal called for a $200,000 premium, the actual bill was for $253,000.

Dorney Park and DVC charges the Naughton agency negligently breached its duties as insurance specialists for the park by:

- Failing to secure the agreed coverage.

- Failing to notify the park, DVC or Merchants Bank of the lapse in insurance coverage.

- Falsely representing to the park that it was insured for fire and casualty losses for blanket coverage of $8 million.

- Allowing the park buildings to be wholly uninsured after the Oct. 21 expiration date of the 1984-85 policies.

Allentown attorneys Joel B. Wiener and Stevens filed the suit. The case has been assigned to Judge Edward Cahn.